China's major state-owned banks were seen selling dollars in the offshore spot foreign exchange market on Tuesday, four sources with knowledge of the matter said, suggesting authorities wanted to slow the pace of the yuan's recent slide.
Such state bank dollar selling appeared as the offshore yuan
weakened towards the psychologically important 7.25 per dollar level, two of
the sources said.
"The 7.25 (yuan per dollar) level remains a key
threshold," said one of them, adding a breach of the level could quickly
send the yuan to lows last seen in 2022.
The yuan's value onshore hit a trough of 7.3280 per dollar
in November, levels last seen during the 2008 global financial crisis, while
the offshore yuan dropped to a record low of 7.3746.
State banks usually act on behalf of the country's central
bank in the foreign exchange market, but they could also be trading on their
own behalf or their clients.
To double down on its defence, the People's Bank of China
(PBOC) set the daily yuan fixing rate stronger than market expectations for the
second day in a row earlier on Tuesday, spurring speculation authorities are
becoming less tolerant of the currency's weakness.[CNY/]
Several currency traders also said they saw state banks
selling dollars on Monday just ahead of the onshore domestic close (0830 GMT)
to shore up the yuan's closing price, as the rate could determine the next
day's official guidance rate.
"The (trading) desk saw strong selling in swaps across
tenors in pre-market trade, likely sterilising spot intervention in the past
few sessions," UBS said in a note, referring to buy/sell trades in the
forwards market to acquire the U.S. dollars the big banks need to procure for
sales in spot transactions to defend the yuan.
The broad yuan weakness has been driven by China's faltering
post-pandemic economic recovery and widening yield differentials with the
United States as the Federal Reserve continues to hike interest rates. The yuan
has slid more than 4% against the dollar so far this year.
With most non-dollar currencies weakening to reflect the
greenback's strength in global markets, the yuan's value against its major
trading partners dipped to a week's low of 96.54 on Tuesday -- taking its
year-to-date loss against that basket to 2.16%, according to Reuters calculation
based on official data.